Saturday, 4 August 2018

IMF package, Pakistan and CPEC, Dr Shabir Choudhry

London05
August 2018

No matter what Pakistani
governments claim, once again, Pakistan is in financial mess. Like their
much-repeated claim of breaking backbone of terrorists, they have often claimed
that they have broken the begging bowl. Both terrorists and financial
turbulence hit Pakistan with vengeance, only to remind the world and the people
of Pakistan that Pakistani establishment and governments are not doing
sufficient to face these challenges.

Imran Khan also made many lofty
claims about economy, and that he won’t take any rescue package from the
International Monetary Fund. Even before Imran Khan takes office, his Finance
Minister to be is busy working out a strategy, as to how to approach and get a
favourable package from the IMF.

American
opposition to IMF bailout

The new government of
Imran Khan, with a begging bowl in hand and chin down, will approach the IMF
and seek a rescue package of $12 billion from the IMF. This is how Imran
Khan’s New Pakistan will start its life in Pakistan.

Unlike the previous IMF bailout
packages, the new package of $12 billion will have some strict conditions
attached to it, because America and some other countries are not happy with
Pakistan’s certain policies, especially related to religious extremists and
militant groups.

Former US Under Secretary of Defence,
Jed Babbin, while talking about the IMF new bailout package for a nuclear
Pakistan, said it will be a bad idea. He thinks nuclear Pakistan is ‘not a
model of stability’.

In his article published in ‘Washington
Post’ on the subject he wrote:

‘Pakistan’s economy is in shambles due to large-scale corruption
and a growing debt crisis. The money it owes other nations and non-Pakistani
entities is more than 30 percent of its GDP partly because of the extensive
loans it has received from China to build parts of CPEC’.1

He thinks the IMF will
certainly help Pakistan to avoid defaulting, but should they do that, he asks.
His rationale is:

Pakistan is ‘continuing
support of a variety of terrorist networks through its infamous Inter Service
Intelligence agency, ISI. Among the terrorist groups Pakistan supports are al Qadea, the Taliban (also supported
by Russia and China) and Lashkar-e-Taiba, which massacred more than 160
people in Mumbai, India, in 2008. Osama bin Laden hid for years in
Abbottabad, Pakistan. It’s inconceivable that ISI wasn’t responsible for his
concealment. 2

He says President
Trump terminated military aid to Pakistan because ‘it refuses to cease
supporting terrorist networks with money, fighters and intelligence
information. But there is no action we, or any other nation, can take to
stop Pakistan’s religiously-based support for terrorism. Why, then,
shouldn’t we block another IMF bailout? 3

In support of his contention, Jed
Babbin further writes:

‘The second reason not
to bail out Pakistan is China growing de facto colonization of Pakistan through
CPEC…. China is conducting what some call “debt trap diplomacy,” through which
Pakistan is becoming so indebted to China that it will be compelled to
follow China’s
policies in Southwest Asia and beyond. In fact, the debt trap has already been
sprung with the eager assistance of the Pakistan’s government, ISI and army’. 4

In this
regard, statement of American Secretary of State Mike Pompeo is alarming.
Already, due to President Trump’s policy, Pakistan is back on the ‘grey list’
of Financial Action Task Force, which will create enormous problems for
Pakistan. Mike Pompeo cautioned all concerned that:

Any
potential International Monetary Fund bailout for Pakistan’s new government
should not provide funds to pay off Chinese leaders.

The
American Secretary of State asserted:

“Make no mistake. We will be watching what the IMF does. There’s
no rationale for IMF tax dollars, and associated with that American dollars
that are part of the IMF funding, for those to go to bail out Chinese
bondholders or China itself”. 5

The American Secretary of State appears to be very
concerned about the Chinese designs in the region, which they want to implement
under cover of economic help or the CPEC. This concern is also shared by some
other countries, who think that China is heavily investing to build
infrastructure in countries which are economically weak with intention of using
them for political and strategical reasons.

Mike Pompeo expressed his concern in the following words:

‘Beijing has already gained control over
a port in Sri Lanka, an island country that bestrides key international
shipping lanes. It has invested in Pakistan's Gwadar Sea Port that could give
the Chinese military access to another facility west of India’. 6

The US
Secretary of State said,’ "We aspire to a regional order - independent
nations that can defend their people and compete fairly in the international
marketplace. We will help them. We will help them keep their people free from
coercion or great power domination."7

In reply
to the statement of US Secretary of State, Pakistan’s interim government
ForeignMinister Abdullah Hussain Haroon strongly rejected the
statement, and called it ‘completely inappropriate’. He further said:

“It
is the stated position of this government that it is totally wrong to link any
IMF package with CPEC. Third parties cannot weaken our collective resolve to
make CPEC a success story.” 8

Abdullah Hussain Haroon also
commented that ‘how relations between the US and Pakistan can improve when
the Financial Action Task Force is throttling Pakistan’s neck’.

Do IMF programmes help
Pakistani economy?

The CPEC
related projects have resulted in enormous imports of Chinese equipment and
materials, and have caused immense problems for Pakistan’s current account
deficit. Although China has provided few billions more to keep Pakistani
economy floating, but that is insufficient as Pakistan needs $6 billion to pay
in loans by December 2018. Of course, Pakistan has other financial commitments
too.

Referring
to the statement of American Secretary of State, one Pakistani economist said,
it was not warranted, and advised the government to take it seriously, because
America has considerable influence in the IMF.

In my
opinion, America may not be able to stop the IMF bailout package, but they can
apply pressure to attach harsh conditions. People need to think why is it that
Pakistan has to go back to the IMF again and again.

Are the
IMF packages designed to create more problems for Pakistani economy or help to resolve
economic problems?

It is believed that the IMF programs are
designed in such a way that they supress productivity and growth potential.
Experts of the IMF control certain aspects of the economy, and tell the Finance
Minister what to do with the economy. How much tax they should increase; or on
what items price should be increased, and how much devaluation of the Pakistani
rupee should be made.

In other words, to a large extent, they
control economy which effects governance and sovereignty. This time they will
be able to direct Pakistani government what should they do with the borrowed
money; and how it should be spent. They may be able to tell Pakistan to stop or
halt certain CPEC projects as they are not productive in judgement of the IMF
experts.

It means
the new Prime Minister of Pakistan, which talks big, and has no experience of
governance at all, will face serious financial problems right from the start.
With time, he will learn that making allegations and criticising others is the
easiest part; governance and facing challenges and resolving difficult problems
require skills, patience and stamina.

In view of
the expected harsh conditions, some Pakistani economists are suggesting that
Pakistan should look for alternatives.

Are there
any alternatives? There are none, in my opinion. In difficult times, Pakistan
usually runs to China, Saudi Arabia and UAE. Saudi Arabia and UAE are not in a
position to provide this amount. China is, but China has already given out far
too much; and it won’t be wise of Beijing to give more to Pakistan for
unproductive things, especially when they know the country has serious balance
of payment problem.

People of Pakistan need to understand
that if they get a rescue package from the IMF, it will be a loan, which will
surely come with certain harsh conditions. This loan and the attached
conditions will surely hurt Pakistani economy. This loan has to be paid back
with interest. On top of this loan, Pakistan has other financial obligations;
and at times, the country has difficulty in paying loan instalments.

It must be noted that lion’s share of
the loan will go in debt servicing and defence obligations.

Pakistani economy is already in a
disarray. Exports are down and imports are too high. To make matters worse tens
of thousands of Pakistani and Azad Kashmiri expatriates working abroad,
especially in the Middle East are being sent back. This will also hurt economy,
as Pakistan won’t get valuable foreign exchange.

Nadeem Ul Haque, a former Deputy Chairman of the
Planning Commission of Pakistan, and a former senior resident representative of
the IMF in Egypt and Sri Lanka, says:

Pakistan, after all,
is an IMF addict. The country has already spent 22 of the past 30 years in a
dozen different IMF bailout programs. No American, IMF, or Pakistani official
has any incentive to reform Pakistan’s structural economic problems, and so the
cycle of bailouts continues. 9

Once in office,
leaders are more interested in satisfying demands of their followers, providing
them jobs, funds and what else is needed. Additionally, they spend more time on
propaganda to fool their own people by painting rosy picture for them, rather
than taking tough decisions which are needed to resolve real problems of
Pakistan.

Funds
provided by IMF, or by some other institutions are not always spent to
stabilise the economy of the country. The IMF data reveals that there had been
21 IMF bailout programmes with Pakistan since 1958. There have been 14 such
programmes since 1980. Question thinking people of Pakistan should ask, have
these programmes resolved the problems the Pakistani economy was facing? Or
they only managed to make some cosmetic changes to justify these bailout
programmes.

In my
opinion, they do not tackle the fundamental problems facing the economy; and
which are holding back the progress. The result is after some years they go
back to the IMF.

21 IMF
programmes spread over 60 years (1958 to 2018) means, on average, after every
2.9 years Pakistan had to seek the IMF help. Is that something to be proud of
as a country? There will be many who will accuse Hindus and Jews for all their
problems, as if all Pakistanis are completely innocent and pious. All their
wrong doings are because of other bad people.

Mr Nadeem Ul Haque
while talking about the new IMF bailout package says:

‘New IMF funding will
no doubt lead Khan’s government to repeat past mistakes. It will cling to
artificial exchange rates, while avoiding reforms that could actually plug
leakages in state-owned enterprises’.10

Many economists believe that some CPEC
projects have potential to boost the Pakistani economy, especially if the
investment is sound. The danger, however, is that the interest rates on some of
the projects is far too high for the Pakistani economy to pay back.

It is suggested that the IMF may seek
assurance from the leaders of the opposition as well, as they did during the
time of Moeen Qureshi in 1994. Both Benazir Bhutto and Nawaz Sharif had to give
assurance to the IMF that they will honour the conditions of the bailout
package signed by the interim government.

Mark Sobel who is a Senior Adviser
with the Simon Chair in Political Economy at the Center for Strategic and
International Studies in Washington, notes in the following words:

‘Pakistan’s economic failings are well documented. For
decades, Pakistan’s real per capita income growth has lagged many peers. Budget
deficits are frequently large. Revenue as a share of GDP is low due to
widespread tax evasion; a failure to tax the well off, including in the
agricultural sector; and fiscal federalism woes. Much spending goes to defense,
squeezing resources for more productive uses, such as education and
investment’.11

In his
opinion the Pakistani currency is overvalued which result in balance of payment
problems. Also, the economy is extremely susceptible to frequently changing oil
prices. There are energy problems and insufficient privatisation, which adds to
the problems.

The last
IMF programme three - year Extended Fund Facility ended in 2016. This programme
did make some progress but it must also be taken into consideration that
Pakistan at that time benefited from very low oil prices; and the IMF’s ‘targets
were not ambitious’. Pakistan’s economic health started to deteriorate soon
after the IMF programme was over, although some economists think the CPEC
funding helped to sustain the decline.

Pakistan needs to make progress in tax
collection; and control its imports. The budget deficits must also be brought
under control. Mark Sobel thinks the IMF must demand accomplishment of certain
prior actions on structural reforms to deal with ‘Pakistan’s low-growth trap’. In order
to make a positive move forward, Pakistan must:

1.Resolve
financial problems in the energy and agricultural sectors;

2.Encourage
privatization and ensure it is properly carried out;

3.Take
strict and viable actions to improve governance; and root out corruption.

Mark Sobel suggests:

·The
IMF must stand ready to halt disbursements at the first sign of problems.

·The
Fund must also ensure that its resources are not used to bail out unsustainable
Chinese CPEC lending. The fund needs to have at its fingertips comprehensive
data on all CPEC lending—its terms, maturities, and parties involved. Chinese
lending should be on realistic terms and consistent with Pakistan’s
sustainability. Otherwise, China should reschedule or write down its loans,
sharply reducing the value of its claims.12

Nadeem Ul Haque, who is a former Deputy Chairman
of the Planning Commission of Pakistan and a former senior resident representative
of the IMF in Egypt and Sri Lanka, expressed his disappointment with the IMF
programmes. Together with the existing inept tax policies, the IMF experts
force Ministry of Finance ‘into
unplanned spending cuts without any real reforms, despite the obvious negative
effect this has on growth’. At times, funding for public services like health, education, police
and railways are cut to the bare minimum.

‘The short-term focus of these programs
ensures that reforms will be postponed, and that obsolete industries will not
be allowed to die. Meanwhile, education goes underfunded, energy and water
shortages grow more frequent and severe, economic imbalances worsen, and the
government’s policymaking capacity continues to erode. Rapidly achieving stable
macroeconomic indicators is all that matters, even if doing so accelerates
social and political decay’.13

Future of CPEC

The new government
will have to continue with the CPEC projects, not because they are beneficial
to Pakistan, and will boost the economy; but because the army establishment
wants its continuation. No matter who started the CPEC, and who has sacrificed
for it, bitter fact is that the CPEC has become army’s beloved baby. They will
make every effort to ensure that their ‘adopted baby’ is cherished, protected
and adequately looked after.

The new government
will not do anything to jeopardise more than $60 billion investment. The
powerful establishment will urge the civilian government to have closer ties
with Beijing. In view of the Pakistani establishment, and in view of many
ordinary folks, the CPEC is essential for the survival of Pakistan.

This becomes more indispensable
when relationship between Islamabad and Washington is frosty; and there seems
to be no visible signs to ease the tensions between old ‘buddies’.

This means the new
government of Imran Khan cannot and will not change the course of the CPEC; and
will try to take credit for certain achievements which, in reality won’t be his
accomplishment. However, it is possible that Imran Khan will also try to
improve relations with Washington as Pakistan cannot afford to be on wrong side
of angry and irritated superpower.

To pacify and win
friendship of America, especially when America is ruled by President Trump, Pakistan
will have to make some serious compromises, and abandon certain aspects of the
old policies. If they fail to do that, and try to hoodwink Washington again,
there can be serious repercussions.

There is an open trade
war between America and China; and Pakistani leaders can be drawn in to this.
It may be in China’s interest that relationship between Washington and
Islamabad remain frosty, as that will make Pakistan more dependent on Beijing.

China, at one time,
was closer to Sharif brothers, but as political landscape of Pakistan was
changing they also established their contacts with other political leaders of
Pakistan. Dhruva Jaishankar, a foreign policy fellow at Brookings India said:

“We may continue to see a
gradual trend of Pakistan drifting closer to China and more distant from the
United States.”14

In view of fast changing geo political
situation, Pakistan desperately need sincere and powerful friends. Pakistan can
rely on China, but Pakistanis need to learn that in international relations,
there are no permanent friends or foes. Relationship between states are based
on national interests; and national interest and alliances do change with time.

Pakistan needs to improve relations
with neighbours. Also, they must strengthen their ties with Saudi Arabia and
other Gulf States. In difficult time, institutions like The Islamic Development
Bank can also extend helping hand.

One doesn’t need to be a genius to understand that
President Trump doesn’t like the CPEC or One Belt One Road, of which the CPEC
is an essential component. President Trump does not like rise of China.
Economically and militarily strong China can challenge America in future. In
view of the above scenario, and trade war between China and America, President
Trump will do everything short of a war to hurt the CPEC.

America can influence IMF bailout package, which in turn
can have a considerable impact on the CPEC projects. Furthermore, America can
influence fate of Pakistan and the CPEC by twisting arm of Financial Action
Task Force. Pakistan is already on the FATF ‘grey list’; and this can create
considerable political and economic problems for Pakistan.

If Pakistan does not abandon their past policies to the
satisfaction of the FATF, then Pakistan’s name can slip down to the ‘black list’.
This ultimately, means more problems for Pakistan and the CPEC.

Writer is a renowned writer and author of many books. He is also a
senior leader of UKPNP and Chairman South Asia Watch, London.

About Me

Dr Shabir Choudhry has done extensive research on the issue of Kashmir and Indo Pakistan relations. He passed BA Honours in Politics and History, and Mphil in International Relations (title of the thesis, ‘Kashmir and Partition of India’); and title of his PhD thesis is ‘Kashmir- An issue of a nation not a dispute of a land’.

Apart from this Dr Shabir Choudhry passed Post Graduates Certificates in Education, and NVQ Assessor’s qualifications; and taught English in London.

Political Achievements

Founder member of JKLF (Jammu Kashmir Liberation Front established in 1977) and got elected as a Press Secretary in 1984.

Became its Secretary General in 1985, and resigned from this post in 1996.

Got elected President of JKLF and Europe in May 1999, and decided not to contest in elections of July 2001.

Said good - bye to the JKLF as it is in many groups and is largely seen as advancing a Pakistani agenda on Kashmir dispute, and set up a new party Kashmir National Party in May 2008.

.

At present, he is:

·Spokesman Kashmir National Party and Director Diplomatic Committee;

·Spokesman for International KashmirAlliance;

·Founder member and Director Institute of Kashmir Affairs;

Previously

·A founder Member and Trustee/ Director of London based registered charity, Kashmir Foundation International and resigned from this position in August 2001.

·Regularly take part in the Sessions of the UN Human Rights (Commission) now Council in Geneva; and address various conferences and seminars to oppose violence and highlight the Kashmir cause.

·Participated in a Round Table Conference on Kashmir, organised by Socialist Group of European Parliament in Brussels in 1993.

·Addressed as a Chief Guest in a seminar on issue of Mangla Dam during the UN Sub Commission’s proceedings in August 2003.

·Addressed as a key - note speaker in a seminar on the issue of Gilgit and Baltistan, organised by Association of British Kashmiris.

·Addressed as a keynote speaker on human rights conference in Paris in 1991.

·Addressed at CambridgeUniversity as a Chief Guest in a conference on Kashmir in 1990.

·Addressed as a keynote speaker at New Delhi conference on Kashmir, which was part of Track Two diplomacy in November 2000.

·In September 2008, addressed a Conference arranged by Interfaith International in Geneva, topic of which was:“Kashmir Issue, Terrorism and Human Rights”.

·Addressed as a speaker in a NGO Conference on Self - Determination in Geneva in August 2000.

·Addressed as a keynote speaker in a fringe meeting of Liberal Democrats at their Annual Conference in Brighton in 1995.

·Participated in World Human Rights Conference in Vienna in 1993.

·Before President Clinton's visit to India and Pakistan in 2000, lead a JKLF delegation to the State Department to discuss Kashmir dispute and situation in South Asia.

·Also had two rounds of meetings with senior State Department officials before President Musharraf’s meeting to Washington in June 2003.

·Apart from that had meetings with senior officials including Ministers of different countries, and also held many meetings with the State Department and Foreign and Commonwealth Office officials on number of occasions.

·Played important role in advancing a Kashmiri perspective on the issue of Jammu and Kashmir; and also helped Baroness Emma Nicholson with her report ‘Kashmir: present situation and future prospects’, which was adopted by the European Parliament in May 2007.

·Won first prize in an essay competition in Urdu in 1976. It was organised by High Commission of Pakistan in London, and title of the essay was 'Qaaid-e- Azam's role in Islamic History'.

·Apart from that have addressed conferences in Brussels, Geneva, Toronto, Islamabad, Delhi, and

Publications

·Got first Urdu novel ‘Fareena’ published at the age of eighteen.

·Second Urdu novel ‘Bay-Khataa’ which was about the problems of Asian youths living in UK published in 1983.

·Third Urdu book ‘Pakistan and Kashmiri struggle for independence’ published in 1990.

·Fourth Urdu book is also on Kashmiri struggle, 'Is an independent Kashmir a conspiracy?'

·Apart from that has twenty books and booklets published in English on various aspects of the Kashmiri struggle.

·Recent publications are: Kashmir dispute as I see it

·Different perspective on Kashmir

·JKLF visit to Pakistan Administered Kashmir

·Kashmir Needs Change of Heart

·If not self - determination then what?

·Emma Nicholson report- who has won?

·Struggle for independence, Jihad or proxy war (Introduction by Baroness Emma Nicholson)

·

Future publications

Following books were completed some time ago and shall be published in near future:

In Search of Freedom - My visit to Srinagar and Islamabad

Kashmir and Partition of India

A brief background

Dr Shabir Choudhry was born in a small village called Nakker Shimali (near Panjeri) in District Bhimber, Azad Kashmir. He went to UK in 1966, and like other people from the region, holds a dual nationality. He left secondary school in 1970 with no qualifications and began his life as a textile worker.

In 1975 he started part time studies and passed Matriculation from Government High School Panjeri, passed ‘O’ and ‘A’ levels from UK, and resumed full time degree course in 1981, and passed BA (Hons) in Politics and History in 1984.

He continued full time and part time jobs until he got his Mphil. He passed his PGCE (Post Graduates Certificate in Education) in 1990, and then started full time job as a Lecturer. Due to health problems he resigned from teaching in 1999. At present he is self - employed, provides private tuition, translation and interpretation and consultancy.

Through out his adult life he has actively worked for the cause of Kashmir, and even during long illness he effectively carried out his responsibilities as a leader of the JKLF, a ‘prolific writer’ and consistent campaigner of Rights Movement and peace in Jammu and Kashmir and South Asia.